How the Stock and Bond Markets Drive Home Loan Rates

The stock and bond markets have their own special relationship.  Often, while one moves higher, the other moves lower.

Poor economic news normally causes money to flow out of stocks and into bonds because investors see bonds as a safer investment when the economy is weak.  An increased demand for bonds drives bond prices higher, as with any item when there is heavy demand for it.  When bond prices move higher, bond yields (and consequently home loan rates) move lower.  So any movement of money into bonds typically helps home loan rates improve.

Conversely, strong economic news normally has the opposite effect.  When the economy appears strong, investors transfer money to stocks, hoping to take advantage of increasing stock prices.  Often this money is pulled out of bonds.  In turn, this causes bond prices to fall and home loan rates to rise.